Friday, May 18, 2007

Memo to Eddie Lampert: Watch Out On Citicorp!

Eddie Lampert starts to maybe accumulate a significant piece of Citicorp (NYSE:C)and puts approximately $800 million on the table. To the best of my knowledge no one has disassembled and reassembled a large international money center bank to attempt to maximize shareholder wealth with a short term hedge fund orientation. This is not some undervalued real estate or a retailer that lost its connection with the buying public.

Banks are regulated,influenced,beholden to and otherwise within the sway of banking regulators of many nations. In this case I would assume the Fed Reserve will call a lot of shots after some consultation with their counterparts in other countries. These guys worry about a lot of stuff in addition to interest rates.

There are too many very senior board members who will not sit idly by as someone attempts to manipulate their company. The ego's and pocket books are too big. In the not too distant past when Citicorp was temporarily embarrassed with a capital adequacy issue they went to some friendly Arab Investors and fixed it. The geo political and global financial ramifications were huge. Eddie you can not do stuff like that.

Yes things can be better at Citicorp. Your corporate repair toolkit does not have the necessary tools.

Thursday, May 17, 2007

Dow Jones Independent Directors Asleep

Wall Street Journal reports that the Dow Jones Board (NYSE:DJ)has met and decided to do stay on the sidelines while the Bancrofts ponder Murdoch's offer. The operative word is stay on the sidelines. We can all do the arithmetic on supposed power of Bancroft voting control.

But consider the principles of Corporate Governance that the Dow Jones Board claims to be following. Effective Feb 21, 2007 and supposedly sanctioned by the NYSE (particularly article 4) Independent Board members play a critical role in corporate governance at Dow Jones.

Article 3 states that "The primary functions of the Board are: review and, where appropriate, approval of the financial objectives, major strategies and plans, and major corporate actions of Dow Jones;...." The article continues with verbiage that supposedly provides for vigorous representation of independent interests.

Article 6 states that "Prospective members of the Board are selected for their character and wisdom, judgment and integrity, business experience and acumen...."

This does not allow the board particularly the independent board members to stay on the sidelines.

The following list of independent board members indicates a group of top flight well seasoned and rich individuals who should not be afraid of exercising and discharging their obligations to all shareholders. Under no circumstances were they selected to sit on the sidelines. They all hold substantial responsibilities elsewhere. If there are serious lawsuits, regulatory investigations and or credible accusations of corporate governance failures will they be able to carry on with their other duties.

A partial list of sleeping independents are Paul Sagan Akami (Nasdaq:AKAM), Jon Barfield The Bartech group, John Brock Coca Cola (NYSE:KO), Lewis Campbell Textron (NYSE:TXT), Eduardo Castro-Wright Wal-mart USA (NYSE:WMT), Harvey Golub Campbell Soup (NYSE:CPB), David Li Bank of East Asia, John Engler President & CEO National Association of Manufacturers and Frank Newman Shenzhen Development Bank.

Wednesday, May 16, 2007

RealNetworks Shoot Me Please

RealNetworks (NASDAQ:RNWK) has just acquired Sony's (NYSE:SNE) digital music provider NetServices for $9,000,000. But they remain a part of Sony DADC. RealNetworks issued updated guidance which really does not change any fundamental opinions.

Does RealNetworks see an opportunity or did Sony just blow out a problem and cash a cheque for $9 million while retaining controls they wanted? Some may conclude a Trojan horse has been put into place.

There is probably some operational justification for the purchase. But the problem remains with RealNetworks. What do they have to offer? At this stage in the game they are still fumbling around with details and have no overwhelming compelling product that will create substantial shareholder value.

Will someone take them over and should we price in a takeover premium? Well the boss of RealNetworks Robert Glaser spent the months of Jan and Feb unloading approximately 160,000 shares. This following heavy selling for most of 2006.

Robert Glaser owns approximately 50 million shares so is the trading significant? Every move is significant. The guy is not hurting for petty cash and would not sell shares if he thought something attractive was coming up.

Sony may run this one around the track a few times for test drive purposes.

Tuesday, May 15, 2007

Murdochs Next Move

Murdochs News Corp (NYSE:NWS)big money offer for Dow Jones (NYSE:DJ) continues to receive criticism. The Pulitzer Prize winning Beijing Office of the Wall Street journal has written a publicly reported letter expressing support against the offer. The journalists who annoyed Chinese government officials with critical articles are rightfully concerned about editorial interference. If Murdoch wins they will need to be concerned about their jobs.

In the mean time Thomson (NYSE:TOC) and Reuters (RTRSF.PK) have successfully concluded their merger talks and are moving forward with little internal acrimony.

Murdoch needs to break through. Everyone thinks the Bancrofts are exercising a family control issue with a seasoning of hubris and ego. The financial offer is stupendous. What will the winning move be? Continued Bancroft control is not viewed optimistically.

Murdoch's financial offer will probably not be financially trumped. So News Corp needs to bring in the intangible player or factor to lessen worries about editorial control. Rupert needs a beard. The man is 76. His family heirs and successors will not stride the public stage as forcefully as he has.

Watch for a mechanism that allows for editorial integrity to be proposed. Mechanisms are two way streets but it just might remove the only plausible Bancroft concern.

If its end game thinking you want consider bringing in Bloomberg. The combination will create a dominance. I do not think being Mayor of New York would be as interesting as running the new and big game in town. The guy also actually understands the products and market place better than most.

Monday, May 14, 2007

Cerberus Ensnares Itself with Chrysler

Cerberus will walk off with Chrysler and that dastardly health and pension liability. DaimlerChrysler (NYSE:DCX) is probably the big winner.

Cerberus has made a reputation for slash and burn. In many of their previous acquisitions the conditions were ripe for this type of manoeuvre. (I.E. the unions and suppliers were weak)

But realistically speaking what will Cerberus do that has not been done before. If the only card they hold is "My knife is the sharpest" they may reduce some short term costs but can they build a car company. In the final analysis they need purchasers with money in their pockets buying the Chrysler nameplate. No one has realistically suggested that Cerberus will improve product design and marketing.

The cost cutting will be brutal and Messers David Thursfield and Wolfgang Berhard seem to have the correct resumes. They are headstrong and good at not caring what others think of their strategies.

The US is heading rapidly into the Presidential election cycle. Democrats seem to be re surging. Sticking it to retirees and current workers will resonate politically. The Chrysler workers are strategically located and can make a big impact.

Cerberus probably has a financial spreadsheet somewhere on what they want to do. Politicians usually can count votes. Cerberus may have purchased a major political problem that they are not very good a dealing with.

Kudos to Daimler for kicking this one out. You can just hear the lock and load over at the auto workers union.